A credit score is a magic number that reveals a person’s financial reputation. Represented by a three-digit number, this score has a massive impact on the life of American adults.
Hard inquiries are among the several things that negatively impact your FICO score. A hard pull is performed by financial institutions and remains on your credit history for 24 months.
But what is a hard inquiry, and why does it lower your financial rating? How can you avoid this from happening? How to deal with unauthorized hard pulls? What’s the difference between a hard and a soft inquiry?
Scroll down to understand the concept and effects of a hard credit check.
What Is A Hard Inquiry?
A credit inquiry performed by financial institutions such as banks and lenders. These are done with your approval only and include your full FICO report. Hard credit pulls signal that you are about to incur debt. So, they always harm your FICO score.
For example, if you apply for a loan, the lender will need your authorization for a full credit pull. They will use your score to determine your creditworthiness, which can result in either an approval or rejection.
Soft vs Hard Credit Check
Now that you know what a hard credit inquiry is, it’s essential to understand how it’s different from a soft credit check. The former lowers your score, and the latter doesn’t. Hard inquiries can’t be made without your consent, while soft credit pulls can.
The main difference is the reason for performing a specific credit inquiry. Soft inquiries are made for informative purposes. For instance, when people want to track their FICO score or get insurance quotes. Hard inquiries meanwhile are closely related to loan and mortgage applications, and similar debt-associated requests.
Who Can Perform A Hard Credit Pull?
Creditors, banks, and lenders are the most common institutions that make hard credit inquiries. Hard pulls provide the full state of your credit history and are needed whenever someone wants to determine your creditworthiness and decide whether to approve your loan or credit application.
Before doing so, however, they need your consent. So, always make sure to ask what type of inquiry the lender or creditor is going to make. If you’re not 100% sure that you want to move on with the application, you should stick to soft inquiries.
How Many Points Does Your Credit Go Down for An Inquiry?
While a soft credit inquiry won’t lower your FICO score, a hard pull can cost you 5-10 points on average. The exact number depends on several credit score factors. Your employment status, payment history, credit utilization ratio, and debt can minimize the damage.
Why Do Hard Inquiries Hurt Your Credit?
A hard credit inquiry is pulled for the following reasons: credit application, loan application, mortgage application, utility service account, cell phone account, credit card application. All these signal that the person either needs money or plans to increase their monthly expenses. That’s the reason hard credit inquiries lower your FICO score.
What is a hard inquiry on a credit report in the eyes of FICO? It’s the person’s first step towards worsening their financial situation. If you apply for a loan, you generate personal debt. If you apply for utility service, you’ll have extra bills every month. The system, therefore, reacts accordingly by lowering your score to warn financial institutions of your new situation.
By contrast, a soft credit pull is done for informative purposes only and doesn’t signal any upcoming debt generation or spending. That’s why such inquiries on credit reports don’t affect the FICO rating.
Does A Hard Inquiry Mean You Were Denied?
The inquiry isn’t related to the decision made by the financial institution reviewing your application. If you apply for a loan, for instance, the lender will pull your credit details to establish your creditworthiness. Based on that information, they will approve or reject your request.
Remember, hard inquires on credit reports will remain there regardless of the outcome of your application. Let’s say, for example, that your car loan request is denied. The inquiry will stay on your record for 24 months to show that you applied for a car loan. The fact that you didn’t get the loan doesn’t matter to FICO.
Can You Remove Hard Inquiries from Your Credit Report?
There are two ways for hard credit checks to disappear from your report. The first way is to wait for 24 months to pass. After this period, FICO automatically removes all inquiries. The second way is to dispute them. For this option, however, the pull must be unauthorized.
How to Dispute Hard Credit Score Inquiries?
Always check your FICO reports for unauthorized hard checks that lower your score. If you notice such an inquiry on your record, react immediately by contacting whoever performed the pull. Also, contact all the major credit bureaus to notify them of the situation.
If the creditor can’t provide proof that you requested and authorized the inquiry, you can demand a removal. That’s why it’s essential to check with them first. Sometimes you may apply for a service without knowing that you also consent to a hard pull.
Remember, in addition to hurting your FICO rating, inquires you never authorized may be a sign of identity theft or fraud. So, you want to deal with them by requesting a hard inquiry removal as soon as possible. You can also place a 90-day fraud alert and even freeze your credit to protect yourself further.
What Happens When Hard Inquiries Are Removed?
Every hard credit pull negatively impacts your FICO score for 5-10 points, on average. Such inquiries remain on your record for 24 months, but their effect lasts for about 12 months. This means that once removed, they should increase your rating for 5-10 points.
It’s important to note that FICO considers multiple factors when lowering and increasing a person’s score. Income, late payments, debt, and active credit accounts are among the things that play a role here. People with a robust FICO rating and no debt often have a better impact from hard inquiry removals.
So, does your credit score go up when a hard inquiry drops off? Yes. How many points your FICO score improves after this happens? It depends.
How Many Hard Inquiries Can You Get a Year?
People with six or more hard credit pulls are more likely to file for bankruptcy or default on loans. That’s why six or more checks on your report are considered too many. People with a sturdy FICO score and no debt, however, won’t be as affected by multiple checks as the rest.
This limit applies to checks done within 24 months. People should be prepared to feel the negative impact for about 12 months. Your score will improve after 12 months, but the inquiry will remain on your record for 12 additional months.
It’s important to note that multiple hard credit checks for the same purpose count as one.
Let’s say you want to buy a house and look for mortgage deals at five different banks. Each bank will pull your FICO score for reference. These five separate checks, however, will be registered as one because the system understands that you don’t need five mortgages.
Just make sure to visit the banks within 14-45 days, and you have nothing to worry about.
Final Thoughts on Hard Credit Score Inquires
Like it or not, your FICO score can limit or expand your options in life. This means that you should stay informed on all the things that can hurt it, hard pulls included.
Make sure you keep track of your credit checks and keep your eyes open for any unauthorized pulls. React fast if something isn’t right and continuously work on improving your FICO score.
After all, a good credit score is your first step to buying your dream home or qualifying for a high-paying job.